AccorHotels to Fund Acquisitions With Sale of Property Unit for $5.4 Billion

Sharon Smyth, Bloomberg

- Feb 28, 2018 9:00 am

Skift Take

While the deal has been flagged for months, it is an important step in the evolution of the company. Of much bigger interest is what Accor decides to do with the proceeds. A decent amount will be spent on share buybacks but with a multi-billion dollar warchest, we can also expect plenty of acquisitions.

— Patrick Whyte

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Accor SA plans to buy back as much as 1.35 billion euros ($1.65 billion) of shares over the next two years after the hotel operator agreed to sell a majority stake in its property business.

Saudi Arabia’s Public Investment Fund, Singapore’s GIC Pte sovereign-wealth fund, Credit Agricole Assurances, Amundi SA, Colony NorthStar Inc. and other investors joined forces to purchase an initial 55 percent stake in AccorInvest, according to a statement Tuesday from the French company. Accor will receive 4.4 billion euros ($5.4 billion) in cash from the deal and plans to pursue regional acquisitions and the buyback.

“Investors will now focus on the asset-light growth story of the group, which we view as one of the most interesting in the lodging space,” Raymond James analyst Simon Lechipre said in a note. Lechipre, who has an outperform rating on the stock, said the proceeds from the sale of the property-unit stake are slightly higher than expected.

Hotel firms have been selling off real estate to focus on operating lodgings and franchising. Accor, Europe’s biggest hotel operator, is selling assets to help fund an expansion in emerging economies. In October, the Paris-based company offered to buy Australia’s Mantra Group Ltd. in a deal that valued the hotel and resort operator at A$1.2 billion ($936 million.) Accor is interested in doing more regional acquisitions, according to an investor presentation about the latest transaction.

Accor fell as much as 2.4 percent in Paris. The shares on Tuesday closed at the highest since June 2015 and have climbed almost 10 percent this year.

The deal puts an enterprise value on the property unit of 6.25 billion euros. The transaction will give the French hotel company “substantial leeway” to grow more and create value for shareholders, Chief Executive Officer Sebastien Bazin said in the statement.

‘Own Life’

Accor will sell down its remaining stake in AccorInvest to 30 percent initially. Then, after a five-year lock-up period, it can reduce its stake further and AccorInvest “will have its own life,” Bazin said on a call with reporters.

Saudi Arabia’s PIF wants to become the world’s largest sovereign fund as the kingdom tries to diversify away from oil under an economic transformation plan known as Vision 2030. The sale of a roughly 5 percent stake in oil giant Saudi Arabian Oil Co. is expected to provide more funds for investments.

In October, the fund hired the head of Qatar Investment Authority’s real estate arm as its chief development officer, people with knowledge of the matter said at the time.

AccorHotels will operate the AccorInvest hotels under contracts of as long as 50 years, with a renewal option, according to the statement. The deal is expected to be finalized in the second quarter and will be submitted to a meeting of AccorHotels shareholders for consultation.